It sounds to me like your employer is not offering a "Qualified" ESPP.
With a Qualified ESPP you make your stock purchases with after-tax money, but you get a discount on the stock's price, a discount that is not reported on the W-2 at the time of your purchase. But a non-qualified disposition of the stock results in W-2 income on the discounted amount.
Of course you get no upfront "deduction" for a purchase of stock with after-tax money with either a Qualified or Nonqualified ESPP. The deduction occurs when you sell the stock because you subtract your basis from the proceeds to determine gain or loss.
But from the way you've described things it appears that while you might be buying he stock with after-tax cash, and maybe at a discount, your employer is charging you the discount by creating compensation income that's included in Box 1 of the W-2. You're buying your stock with less "upfront" money but you're paying taxes on the discount amount because the discount is being considered "compensation."
Check and see if that's not the case here.
Tom Young
